Skype Becomes a Scourge

New filtering software may put the VoIP revolution on hold.
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Here's a good measure of how close a new technology is to hitting the mainstream: the number of people complaining about how big a danger it's becoming.

The complaints usually turn out to be overblown. The Internet was supposed to turn us into a bunch of laptop potatoes addicted to sex, sports and gambling. It turned out that email, search and news were the big draws. We also hear how nanotech is supposed to kill us with toxic nanotubes and insidious yet tiny robots, just as music swapping will surely send Celine Dion and Clay Aiken to the poorhouse.

Now it's VoIP's (voice-over-Internet protocol) turn in the pillory, and the poster child for this latest menace is Skype. First released in August 2003, Skype is used by 55 million people around the world -- a user base larger than the populations of California and Texas combined. That brisk growth rate put Skype in the spotlight and made it a coveted target for

eBay

(EBAY) - Get Report

, which paid $2.5 billion for the company in September, vowing to pony up another $1.5 billion if certain goals were met by 2008.

Skype users can phone each other for free and phone others for a few cents a minute. You can imagine that's not going over very well with the phone carriers, which spend billions building up networks and paying fees and 911 costs only to watch customers defecting to VoIP services like Skype. And now that

Google

(GOOG) - Get Report

and

Yahoo!

(YHOO)

are offering similar services, more Internet users are growing comfortable with them.

Unlike other services, Skype is a peer-to-peer (P2P) service, allowing users to send files to each other at no cost to themselves. Carriers have complained that sending large video and music files across P2P networks has sucked up bandwidth and slowed the Internet down for all their users. But Skype supporters argue that these concerns are overstated, and that the carriers are fighting to hang on to an antiquated business model.

Last week, the growing debate took an interesting turn when

Verso

(VRSO)

, a small Atlanta-based software company that sells Web nanny filters to schools, said a carrier in China had started a paid trial of its software that has what Verso called "Skype-filtering technology."

Verso CEO Monty Bannerman says his company developed the Skype-blocking feature after a few of his clients requested it. "It doesn't simply block Skype, it allows you to choose how and when to filter the traffic," he says. "We'll see more people interested in it, and we've been in discussions with several companies about a product that blocks it at the router."

Never mind that Verso's software filters out a lot of other programs. And leave aside for now the legal wisdom of using the trademark of another company when you're marketing a product designed to hurt that company. Skype CEO Niklas Zennstrom went straight for the jugular in his response. "We called around to some telcos and no one has heard of them," he told

Reuters

. Ouch.

Zennstrom also said that Skype was working closely with Chinese operators as it does elsewhere. Bannerman replied with a statement saying his company has been in China more than 10 years and accused Skype of clogging networks, degrading service for mission-critical applications and keeping carriers from following legal intercept laws.

"The biggest issues with Skype are the security implications," Bannerman said in an interview. "It keeps running on your computer when you're not using it and can expose it to viruses, denial-of-service attacks and remote control by another computer."

A Skype spokesperson said that the company has done work with noted cryptologists who found the service was protected from all attack scenarios. "The confidentiality of a Skype session is far greater than that offered by a wired or wireless telephone call, or by email and email attachments," she said in an email.

As entertaining as the back-and-forth between Skype and Verso is, the larger issue is that the attention that Verso's new filter has drawn underscores a growing problem for Skype and its peers: Phone carriers have been willing thus far to communicate with P2P telephony services, in order to understand them and see whether they present a threat. But the video transferring and free phone calls are starting to strain those ties.

The growing impatience was clear in comments that

SBC

(SBC)

CEO Edward Whitacre made in a

Business Week

story: "How do you think they're going to get to customers? Through a broadband pipe. Cable companies have them. We have them. Now what they would like to do is use my pipes free, but I ain't going to let them do that because we have spent this capital and we have to have a return on it."

The real issue is not so much how much a new technology like P2P telephony could help users vs. causing harm. It's how the companies in a position to manage those technologies navigate around the potential hazards. In that respect, Skype's decision to be bought by eBay may have been smart beyond the high price tag.

eBay's management nurtured its auction site into a $3 billion-a-year business while others like Onsale and Yahoo! Auctions never moved beyond the niche phase. And eBay has taken the potentially controversial technology behind PayPal -- an online payment method that one day could render credit cards a quaint relic -- into a $1 billion-a-year unit in six years. The company may have its share of irked customers, but it has made few enemies in the corporate world even as it has built up allies in the public sector.

Verso's Skype-filtering software is only likely to be as dangerous as the fear driving it. Like Skype itself, the good or bad done by filters depends on how they are put into use. But if paranoia takes over and software like Verso's is installed as a matter of routine on routers, the benefit of VoIP telephony could be crushed in its infancy.